A boost to hybrid or electric vehicle and an introduction of a scheme to scrap truck older than 15 year old is also in the offing in the Budget, feel experts.Amit Mudgill | ETMarkets.com | Updated: January 28, 2017, 13:52 IST

NEW DELHI: Amid weak demand environment, the auto sector is likely to see a host of announcements aiming at boosting consumer sentiment that may revive auto sales after a tepid December quarter.

Experts believe that the government may announce rural-focused schemes in the wake of looming state elections, while it could increase income tax exemptions in the Budget scheduled for next week. All this could boost consumer sentiment and result in higher sales of two-wheelers and personal vehicle, whose sales degrew 2-5 per cent in the quarter gone by.

A boost to hybrid or electric vehicle and an introduction of a scheme to scrap truck older than 15 year old is also in the offing, feel experts. They though see low probability on any change in the tax structure given the impending goods and services tax (GST).

“Considering the likely GST implementation from July, we do not expect any changes in indirect taxes. However, we expect an increase in income tax exemptions and higher allocation toward rural-focused schemes. Lower income tax and the focus on rural markets could put two-wheeler industry back on the growth path,” said Motilal Oswal Securities in a note.

“This, coupled with the benefit of normal monsoon and 7th Pay Commission, could drive two-wheeler volume CAGR of 10-12 per cent over FY17-19E,” the brokerage said.

Binay Singh and Satyam Thakur of Morgan Stanley are expecting the government to incentivise electric or hybrid vehicles through duty exemptions. For this, the foreign brokerage is expecting details on possible extension of the FAME program and announcement incentives for electric vehicles. M&M and Maruti Suzuki could benefit from any such announcement.

The market would be looking into details relating to incentives, timeline and process for the fleet modernisation or scrappage program, which could benefit players such as Ashok Leyland, Tata Motors and Eicher Motors.

Experts noted that the commercial vehicle volume growth was flat in the December quarter, even as it stood 6 per cent YoY up in the first nine months of FY2016-17. Motilal Oswal Securities believes that the introduction of scrappage scheme could boost growth for CV players to 15-18 per cent compounded annually from 12 per cent at present. Ashok Leyland and Bosch are a play on any such announcement, the brokerage said.

During April-December period, the auto industry produced a total 19,236,932 vehicles including passenger vehicles, commercial vehicles, three wheelers, two wheelers and quadricycle against 17,925,959 in the year ago quarter, registering a growth of 7.31 per cent.

In the ongoing financial year, excise duty charged on purchase of ranges between 6 per cent and 30 per cent. The industry is expecting uniform excise duty structure, which could be positive for Maruti Suzuki, M&M and Tata Motors, among others.

“We believe the budget to be positive for the industry and expect Maruti to emerge as beneficiary considering its large market share and Pan-India presence,” Angel Broking said in a note.

There may also be scheme incentivising those with plans to phase out of older commercial vehicles (CV). That may turn positive for Ashok Leyland and Tata Motors.

In the ongoing financial year, excise duty charged on purchase of ranges between 6 per cent and 30 per cent. The industry is expecting uniform excise duty structure, which could be positive for Maruti Suzuki, M&M and Tata Motors, among others.

“We believe the Budget to be positive for the industry and expect Maruti to emerge as beneficiary considering its large market share and Pan-India presence,” Angel Broking said in a note.